IDEAS home Printed from https://ideas.repec.org/p/wbk/wbrwps/4808.html
   My bibliography  Save this paper

Globalization and innovation in emerging markets

Author

Listed:
  • Gorodnichenko, Yuriy
  • Svejnar, Jan
  • Terrell, Katherine

Abstract

Globalization brings opportunities and pressures for domestic firms in emerging markets to innovate and improve their competitive position. Using data on firms in 27 transition economies, the authors test for the effects of globalization through the impact of increased competition and foreign direct investment on domestic firms'efforts to innovate (raise their capability) by upgrading their technology, improving the quality of their product or service, or acquiring certification. They find that competition has a negative effect on innovation, especially for firms further from the efficiency frontier, and we do not find support for an inverted U effect of competition on innovation. The authors show that the supply chain of multinational enterprises and international trade are important channels for domestic firms'innovation. They detect no evidence that firms in a more pro-business environment are more likely to display a positive or inverted U relationship between competition and innovation, or that they are more sensitive to foreign presence.

Suggested Citation

  • Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2009. "Globalization and innovation in emerging markets," Policy Research Working Paper Series 4808, The World Bank.
  • Handle: RePEc:wbk:wbrwps:4808
    as

    Download full text from publisher

    File URL: http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2009/01/05/000158349_20090105142547/Rendered/PDF/WPS4808.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nina Pavcnik, 2002. "Trade Liberalization, Exit, and Productivity Improvements: Evidence from Chilean Plants," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 245-276.
    2. Holger Görg & David Greenaway, 2016. "Much Ado about Nothing? Do Domestic Firms Really Benefit from Foreign Direct Investment?," World Scientific Book Chapters, in: MULTINATIONAL ENTERPRISES AND HOST COUNTRY DEVELOPMENT Volume 53: World Scientific Studies in International Economics, chapter 9, pages 163-189, World Scientific Publishing Co. Pte. Ltd..
    3. Philippe Aghion & Robin Burgess & Stephen Redding & Fabrizio Zilibotti, 2005. "Entry Liberalization and Inequality in Industrial Performance," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 291-302, 04/05.
    4. Bertschek, Irene, 1995. "Product and Process Innovation as a Response to Increasing Import and Foreign Direct Investment," Journal of Industrial Economics, Wiley Blackwell, vol. 43(4), pages 341-357, December.
    5. Peter, Klara Sabirianova & Svejnar, Jan & Terrell, Katherine, 2004. "Distance to the Efficiency Frontier and FDI Spillovers," IZA Discussion Papers 1332, Institute of Labor Economics (IZA).
    6. Cohen, Wesley M. & Levin, Richard C., 1989. "Empirical studies of innovation and market structure," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 18, pages 1059-1107, Elsevier.
    7. Gorodnichenko, Yuriy & Svejnar, Jan & Terrell, Katherine, 2014. "When does FDI have positive spillovers? Evidence from 17 transition market economies," Journal of Comparative Economics, Elsevier, vol. 42(4), pages 954-969.
    8. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    9. Jonathan Michie, 1998. "Introduction. The Internationalisation of the Innovation Process," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 5(3), pages 261-277.
    10. Svejnar, Jan & Terrell, Katherine & Gorodnichenko, Yuriy, 2007. "When Does FDI Have Positive Spillovers? Evidence from 17 Emerging Market Economies," CEPR Discussion Papers 6546, C.E.P.R. Discussion Papers.
    11. Martin Neil Baily & Hans Gersbach, 1995. "Efficiency in Manufacturing and the Need for Global Competition," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1995 Micr), pages 307-358.
    12. Eric J. Bartelsman & John Haltiwanger & Stefano Scarpetta, 2004. "Microeconomic Evidence of Creative Destruction in Industrial and Developing Countries," Tinbergen Institute Discussion Papers 04-114/3, Tinbergen Institute.
    13. Aghion, Philippe & Howitt, Peter, 1992. "A Model of Growth through Creative Destruction," Econometrica, Econometric Society, vol. 60(2), pages 323-351, March.
    14. Donald W. K. Andrews, 1999. "Consistent Moment Selection Procedures for Generalized Method of Moments Estimation," Econometrica, Econometric Society, vol. 67(3), pages 543-564, May.
    15. Marianne Bertrand, 2004. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," Journal of Labor Economics, University of Chicago Press, vol. 22(4), pages 723-766, October.
    16. Clark, Gregory, 1987. "Why Isn't the Whole World Developed? Lessons from the Cotton Mills," The Journal of Economic History, Cambridge University Press, vol. 47(1), pages 141-173, March.
    17. Blalock, Garrick & Gertler, Paul J., 2008. "Welfare gains from Foreign Direct Investment through technology transfer to local suppliers," Journal of International Economics, Elsevier, vol. 74(2), pages 402-421, March.
    18. Klara Sabirianova Peter & Jan Svejnar & Katherine Terrell, 2012. "Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 981-999, November.
    19. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    20. Beata Smarzynska Javorcik, 2004. "Does Foreign Direct Investment Increase the Productivity of Domestic Firms? In Search of Spillovers Through Backward Linkages," American Economic Review, American Economic Association, vol. 94(3), pages 605-627, June.
    21. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2004. "Entry and Productivity Growth: Evidence from Microlevel Panel Data," Journal of the European Economic Association, MIT Press, vol. 2(2-3), pages 265-276, 04/05.
    22. Carlin Wendy & Schaffer Mark & Seabright Paul, 2004. "A Minimum of Rivalry: Evidence from Transition Economies on the Importance of Competition for Innovation and Growth," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 3(1), pages 1-45, September.
    23. Kamien, Morton I & Schwartz, Nancy L, 1972. "Market Structure, Rivals' Response, and the Firm's Rate of Product Improvement," Journal of Industrial Economics, Wiley Blackwell, vol. 20(2), pages 159-172, April.
    24. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
    25. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    26. James A. Schmitz Jr., 2005. "What Determines Productivity? Lessons from the Dramatic Recovery of the U.S. and Canadian Iron Ore Industries Following Their Early 1980s Crisis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 582-625, June.
    27. Geroski, Paul A., 1995. "Market Structure, Corporate Performance, and Innovative Activity," OUP Catalogue, Oxford University Press, number 9780198288558, Decembrie.
    28. Gilbert, Richard J & Newbery, David M G, 1982. "Preemptive Patenting and the Persistence of Monopoly," American Economic Review, American Economic Association, vol. 72(3), pages 514-526, June.
    29. Steven Salop, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 393-406.
    30. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    31. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-746, August.
    32. Alastair R. Hall & Fernanda P. M. Peixe, 2003. "A Consistent Method for the Selection of Relevant Instruments," Econometric Reviews, Taylor & Francis Journals, vol. 22(3), pages 269-287, January.
    33. Richard Blundell & Rachel Griffith & John van Reenen, 1999. "Market Share, Market Value and Innovation in a Panel of British Manufacturing Firms," Review of Economic Studies, Oxford University Press, vol. 66(3), pages 529-554.
    34. Beata S. Javorcik & Mariana Spatareanu, 2008. "Liquidity Constraints and Linkages with Multinationals," LICOS Discussion Papers 22508, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Philippe Aghion & Richard Blundell & Rachel Griffith & Peter Howitt & Susanne Prantl, 2009. "The Effects of Entry on Incumbent Innovation and Productivity," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 20-32, February.
    2. Schiantarelli, Fabio, 2005. "Product Market Regulation and Macroeconomic Performance: A Review of Cross Country Evidence," IZA Discussion Papers 1791, Institute of Labor Economics (IZA).
    3. Philippe Aghion & Nick Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2005. "Competition and Innovation: an Inverted-U Relationship," The Quarterly Journal of Economics, Oxford University Press, vol. 120(2), pages 701-728.
    4. Liliana Meza-González & Jaime Marie Sepulveda, 2019. "The impact of competition with China in the US market on innovation in Mexican manufacturing firms," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 28(1), pages 1-21, December.
    5. Xavier Vives, 2008. "Innovation And Competitive Pressure," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 419-469, December.
    6. Charles Bérubé & Marc Duhamel & Daniel Ershov, 2012. "Market Incentives for Business Innovation: Results from Canada," Journal of Industry, Competition and Trade, Springer, vol. 12(1), pages 47-65, March.
    7. Cornett, Marcia Millon & Erhemjamts, Otgontsetseg & Tehranian, Hassan, 2019. "Competitive environment and innovation intensity," Global Finance Journal, Elsevier, vol. 41(C), pages 44-59.
    8. Polemis, Michael L. & Tzeremes, Nickolaos G., 2019. "Competitive conditions and sectors’ productive efficiency: A conditional non-parametric frontier analysis," European Journal of Operational Research, Elsevier, vol. 276(3), pages 1104-1118.
    9. Brouwer, E. & van der Wiel, H.P., 2010. "Competition and Innovation : Pushing Productivity Up or Down?," Discussion Paper 2010-52, Tilburg University, Center for Economic Research.
    10. Elena Podrecca, 2013. "Riforme del mercato dei prodotti e crescita della produttivit?. Teoria ed evidenza empirica," ECONOMIA E SOCIET? REGIONALE, FrancoAngeli Editore, vol. 0(2), pages 10-41.
    11. Brouwer, E. & van der Wiel, H.P., 2010. "Competition and Innovation : Pushing Productivity Up or Down?," Other publications TiSEM 9efe62df-d940-4471-8bc7-e, Tilburg University, School of Economics and Management.
    12. Claude D'Aspremont & Rodolphe Dos Santos Ferreira & Louis‐André Gérard‐Varet, 2010. "Strategic R&D investment, competitive toughness and growth," International Journal of Economic Theory, The International Society for Economic Theory, vol. 6(3), pages 273-295, September.
    13. Bessonova, Evguenia & Gonchar, Ksenia, 2019. "How the innovation-competition link is shaped by technology distance in a high-barrier catch-up economy," Technovation, Elsevier, vol. 86, pages 15-32.
    14. Daria Onori, 2015. "Competition and Growth: Reinterpreting their Relationship," Manchester School, University of Manchester, vol. 83(4), pages 398-422, July.
    15. Anetta Čaplánová & Rudolf Sivák & John Hudson, 2012. "Vplyv priamych zahraničných investícií na inovačnú činnosť firiem [The Impact of Foreign Direct Investment on Firms´ Innovation Activities]," Politická ekonomie, Prague University of Economics and Business, vol. 2012(6), pages 764-779.
    16. MARSCHINSKI Robert & DE AMORES HERNANDEZ Antonio & AMOROSO Sara & BAUER Peter & CARDANI Roberta & CSEFALVAY Zoltan & GENTY Aurelien & GKOTSIS Petros & GREGORI Wildmer & GRASSANO Nicola & HERNANDEZ GUE, 2021. "EU competitiveness: recent trends, drivers, and links to economic policy: A Synthesis Report," JRC Research Reports JRC123232, Joint Research Centre (Seville site).
    17. Amable, Bruno & Demmou, Lila & Lezdema, Ivan, 2007. "Competition, Innovation and Distance to Frontier," CEPREMAP Working Papers (Docweb) 0706, CEPREMAP.
    18. Chen, Cheng, 2019. "Trade liberalization, agency problem and aggregate productivity," European Economic Review, Elsevier, vol. 111(C), pages 421-442.
    19. Renaud Bourlès & Gilbert Cette & Jimmy Lopez & Jacques Mairesse & Giuseppe Nicoletti, 2013. "Do Product Market Regulations In Upstream Sectors Curb Productivity Growth? Panel Data Evidence For OECD Countries," The Review of Economics and Statistics, MIT Press, vol. 95(5), pages 1750-1768, December.
    20. Benavente, Jose Miguel & Zuniga, Pluvia, 2021. "How does market competition affect firm innovation incentives in emerging countries? Evidence from Latin American firms," MERIT Working Papers 2021-024, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).

    More about this item

    Keywords

    E-Business; Education for Development (superceded); Microfinance; Labor Policies; Emerging Markets;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • M16 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - International Business Administration
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:4808. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Roula I. Yazigi (email available below). General contact details of provider: https://edirc.repec.org/data/dvewbus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.